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Vertical Bridge Issues Secured Tower Revenue Securities

October 20, 2016 — Vertical Bridge has announced the closing of $196 million initial principal amount of Series 2016-2 Secured Tower Revenue Notes in a private asset-backed securitization transaction.

The Notes were issued by Vertical Bridge CC and were issued in two classes consisting of $174.2 million initial principal amount of Class A Notes and $21.8 million initial principal amount of Class B Notes.  The Notes were priced with an annual yield to expected maturity of 5.25% for the Class A Notes and 7.00% for the Class B Notes.  The Notes were rated at the closing by both Morningstar and Kroll.  The Notes have an anticipated repayment date of October 2021 and final legal maturity of October 2046.

“This issuance is Vertical Bridge’s second securitization in 2016 and reflects the high quality of the radio broadcast towers we have acquired and the long term stability of cash flows resulting from the mission critical role that tower infrastructure plays in the delivery of media and communications.  Together with our founding investors, Digital Bridge, we have been accessing the securitization market for nearly a decade and we anticipate regular ongoing issuances to support the continued growth of our communications infrastructure investments,” said Alex Gellman, CEO and Co-Founder of Vertical Bridge.

The Securities are collateralized by tenant lease payments on a geographically diverse portfolio of 407 radio broadcast tower sites. The proceeds of this offering will be used to fully repay the existing credit facility on these tower sites.

Guggenheim Securities served as Structuring Agent and Bookrunning Manager for the offering.

Vertical Bridge Adds 1,000 Rooftops Through Agreement

By J. Sharpe Smith

Vertical Bridge has signed an exclusive five-year agreement with the RMR Group to market, manage and master lease telecom sites at more than 1,000 RMR-managed buildings. Terms of the transaction were not disclosed.

The RMR Group, which invests in real estate and manages real estate related businesses, has a portfolio of managed assets that includes hotels, travel centers, healthcare, senior living and office properties.

“With the RMR portfolio, there are lots of good buildings with lots of good spots for telecom equipment,” Jim McCulloch, VP real estate, Vertical Bridge, told AGL’s eDigest. “The more high quality relationships we have and the more high quality sites we control, the better we are going to look to the carriers.”

The way the deal works is that Vertical Bridge becomes a tenant of the building when it leases a rooftop space to a carrier, which then becomes Vertical Bridge’s tenant. The recurring revenue is then shared between the building owner and Vertical Bridge. The agreement with RMR is subject to certain performance goals after five years. Even if the relationship were to end with RMR, Vertical Bridge would remain as a tenant on the buildings until its contract with the carrier ends.

Vertical Bridge now has more than 40,000 assets that it can lease to carriers but does not own. Four months ago, Vertical Bridge entered into an agreement to manage and market wireless deployment sites at 250 medical office buildings owned by Welltower.

Before that, in September 2015, Vertical Bridge signed an exclusive multi-year agreement with Clear Channel Outdoor Holdings for the management and marketing of wireless deployment on its billboards and other out-of-home assets in 45 top U.S. markets, including 1,200 digital billboards.

In addition to owning cell towers, agreements to market, manage and master lease rooftops and billboards gives Vertical more assets that help it to compete with larger tower companies, according to McCulloch.

Rooftops are favorable locations for macrocells and small cells, while billboards are mostly likely to be leased for small cells or for the Internet of Things. In general, these sites help Vertical Bridge serve carriers that want to densify their networks.

“Vertical Bridge still responds to search ring requests from the carriers for macrocell placement, but for small cells or IoT, the carriers are more market driven, and we might present them with 20 sites in a given market,” McCulloch said.

Vertical Bridge’s portfolio now stands at over 45,000 owned and/or managed sites including tower, rooftop, billboard, utility attachments and other site locations across the United States. Expect more to come.

Vertical Bridge Acquires Towers from Alaska Wireless Network

By J. Sharpe Smith

Vertical-BridgeMay 5, 2016 — Vertical Bridge has acquired 275 sites and secured a build to suit arrangement for new towers from Alaska Wireless Network (AWN), the wholly owned subsidiary of wireless carrier General Communications, Inc. for $91 million. The transaction is valued at approximately 20 times tower cash flow and is expected to close in mid-2016.

AWN will be an on-going tenant on all of the sites in this sale-leaseback transaction. The majority of the towers are fiber ready and are expected to be upgraded from 3G to LTE.
The towers cover Anchorage, Fairbanks, Juneau, Ketchikan, Kodiak Island, Wasilla and the Kenai Peninsula, which includes 90 percent of the Alaska population. Coverage also includes the corridors between the population centers.

On nearly 80 percent of the sites, AWN is the only tenant, leaving significant upside for a second and third tenant on each site. In the next five years, Vertical Bridge expects to serve all the major carriers.

“We think these towers will be very attractive to the big four as they think about network expansion and densification,” said Bob Paige, senior vice president of mergers and acquisitions, Vertical Bridge.

Verizon has built out in Fairbanks, Anchorage and Matanuska-Susitna Borough, which includes Wasilla. “We think Verizon will be one of our best partners in the long term,” Paige said. “They have done a pretty good job of building out, but there are still a lot of gaps in coverage given the vast territory.”

“AT&T’s presence is pretty modest in Alaska, and T-Mobile has stated they want a bigger presence, as well as Sprint,” he added.

While Alaska is a vast state, Vertical Bridge’s newly purchased tower portfolio is dense, according to Paige. For example, it has 76 sites in Anchorage, 26 sites in Wasilla and 30 sites in Fairbanks.

“When AT&T decides to make a meaningful entry into the market, it only has to make one phone call to Vertical Bridge to complete a lot of its network buildout,” Paige said. “That was one of the appeals to working with AWN.”

Global Tower Partners, from which many of the Vertical Bridge principals originated, had a significant portfolio in Alaska and a lot of experience in the state. Even though the price was a consideration, Paige believes that Vertical Bridge won the bidding process because of its experience in the state and in working with sale-leaseback partners.

“We own the towers; they own the network. It is a marriage. We need each other to coexist,” he said. “They wanted to make sure they were hitching their wagon to someone they can work with in the foreseeable future, and we know how to get things done in Alaska.”

Tower Company/Carrier Economics Must Change – Panelists Say

By J. Sharpe Smith

April 26, 2016 — T-Mobile’s Allan Tantillo proposed and Vertical Bridge’s Mike Belski agreed that the current system of tower rent escalators and other amendment-related price increases will need to change in the future, during a panel at the Inaugural Wireless West Conference (WWC), held last week, in Anaheim.

WWC was presented by five state wireless associations, representing California, Arizona, Nevada, Colorado and the Northwest. AGL Media Group assisted with programming and the moderating of the panels at the two-day conference.

During the panel, “The New Economics of Wireless Infrastructure,” which was moderated by Pat Troxell-Tant, Solution Seven, industry experts agreed that the state of the wireless infrastructure industry is healthy, but it will have to adjust to the carriers’ dramatically changing economics.

The cost of spectrum is one of the factors that have changed the economics of wireless infrastructure, according Clayton Funk, managing director, MVP Capital. The AWS-3 auction brought a whopping $45 billion in bids in 2015, and this year the 600 MHz Broadcast Incentive Auction is estimated to bring either $25 billion to $30 billion, according to JP Morgan, or $60 billion to $80 billion, according to Kagan Media Appraisals.

“Because it has gotten so expensive to buy spectrum, the carriers have to become more creative in making their spectrum use more efficient, such as network densification and MIMO,” Funk said.
Other factors in carrier economics are infrastructure build out costs, which globally between 3G and 4G were $700 billion, and falling revenue growth.

“The model of spending significant capex dollars and not getting the same return on their investment doesn’t work,” Funk said. “Whatever 5G becomes, carriers will need to make it more profitable.”
As new technologies roll out, carriers will look for ways to use spectrum more efficiently, according to Tantillo, but carriers’ cost cutting will also extend to current macrocell infrastructure as their economic model shifts. As the carriers attempt to drive down the costs, especially in tower rent, tower companies will need to reevaluate their prices if they want the carriers’ business, he said.

“It is incumbent upon those tower operators that are seeing their business threatened to adapt to new ways to do business and to find more efficient ways to serve us,” he said. “We want to go on to those old macrosites, but maybe their model needs to change. Maybe that can’t come and say, ‘Every time you add a TMA [tower mounted amplifier] on a tower it is a $150 a month increase in your rent.’”

Tantillo believes that competition among the tower companies will drive down the prices for rent and escalators, as well as amendments.

“Who wants to keep my lease? Can I put it out to auction?” he asked. “There are some very aggressive tower companies out there that are looking to be fantastic partners with us.”

Tantillo wasn’t talking chump change, either. He spoke of offers to cut leases from $3,000 to $1,500 a month and to lower escalators from 3.5 percent to 2 percent.

“They are saying, ‘give us your list of sites, and we will make it worth your while,’” he said. “We will work with you today so that when the lease expires, we will be ready for you to go on to our site and we will lower the cost curve for you.”

Mike Belski, senior vice president of leasing and marketing, Vertical Bridge, acknowledged that some leases had become unsustainable after escalating for an extended period of time, and he pledged to work with the carriers to develop a new business model.

“So the challenge for us is the paradigm shift. We have to think about leasing differently. We never thought we would add so much equipment to these towers. Vertical Bridge wants to be a part of the solution and not part of the problem,” he said.

Carriers will aggressively take advantage of opportunities to lower their tower costs and tower companies will feel direct pressure, Tantillo said.

“The challenge to the major tower companies that have most of the tower portfolios is, do you want to lose $3,000 and possibly future business or give me a deal that makes me want to stay there,” he said. “Tower companies are going to be faced with some pressure to bring their cost structures in line.”

AGL Conference Panel Ponders Health of Tower Industry

By J. Sharpe Smith

March 10, 2016 — The tower panel at the AGL Conference, held March 8 in Atlanta, agreed that the wireless industry in general, and towers in particular, has great potential for the future. But with leasing in the doldrums last year and so far this year, the conversation surrounded when that future will get here.


L to R: Bob Paige, Vertical Bridge; Clayton Funk, MVP Capital; Marty Travers, Black & Veatch; Doug Dimitroff, Philips Lytle. Not Pictured Pat Tant, Solution Seven (Photo: J. Sharpe Smith)

The industry trends that make wireless such a successful industry are still in place, according to Clayton Funk, managing director, MVP Capital.

“The tower industry has definitely cooled off, but longer term, trend-wise, it is very positive,” he said. “The macrocellular network is still the number one way for the carriers to provide the consumer with an excellent customer experience.”

That said, the tower industry is currently in “purgatory” with a number of factors possibly causing headwinds, according Funk. Questions surround how much capex is being spent on small cells and fiber deployment, as opposed to funding macrocellular network buildout.

“What will 5G look like and how much revenue will it push to the tower companies? Don’t underestimate how long it will take to find out,” Funk said. Other big picture items worth keeping an eye on include decreasing ARPUs and cost cutting at the carriers, he added.

Black & Veatch was not spared some of the pain in 2015, according to Marty Travers, president, telecommunications at B&V, who said he was happy when the year was over. However, he is optimistic about 2016 because the reduced capex of the carriers drove the company to diversify into alternative markets, such as Internet of Things/ Machine to Machine (IoT/M2M).

“[Carrier reduced capex] caused us to look at other markets where we could apply the skillsets that we have in infrastructure deployment,” Travers said. “We are looking at alternative markets, including working with Ingenu [on IoT/M2M], where there are small sites spread across large geography. That sits well with our skillsets.”

Surprisingly, work in the wireline sector has picked up some of the slack, as well. In 2014, 95 percent of Black & Veatch’s work was wireless versus 5 percent wireline. This year it is projected to be 65 percent wireless/35 percent wireline.

“Interestingly enough, everyone thought building out wireline capacity was over. That is not the case. It is seeing a significant resurgence. Wireless is still leading the way but we have shifted to an awful lot of fiber to the home projects,” Travers said. “This is the best way to keep our teams together and our expertise sharp.”

Travers is confident carriers will come back to investing in towers, but he urged the audience to take a broader view of the telecommunications landscape.

“Nobody wants less coverage, slower speeds or less capacity. Those will all eventually fuel our industry, but we have to be smart about where else we can apply our skillsets in an effective manner,” he said. “The skillsets that we have, and that this audience has, are applicable to other services.”

Bob Paige, SVP, mergers and acquisitions, predicted that AT&T will be up year over year, Verizon and T-Mobile will be steady, but “Sprint is the wild card.”

“[Sprint has] a lot of challenges with determining their network structure and how to finance the build out,” Paige said. “From our perspective, it really has been only one carrier spending for the last two years, so it is ironic that the tower companies’ stocks have been at historic levels.”

Funk noted that the billions of dollars will be spent on spectrum at the incentive auction this year and will be a drag on tower leasing.

“I think this year is going to be rather slow in terms of capex dollars and it will pick up in 2017/2018,” Funk said. Paige agreed with his assessment.